Question 1 If the investor anticipates that the price of stock will be stable, h

Question

Question 1

If the investor anticipates that the price of stock will be stable, he or she may

sell a straddle

buy a straddle

buy a call

buy a put

Question 2

Warrants and calls do not have

an expiration date

a specified exercise price

the right to receive dividends

a strike price

Question 3

The maximum daily price increase that is permitted in the futures markets is

the daily limit

the daily range

$1 per contract

5% per contract

If the investor buys a bear spread, the individual anticipates

higher interest rates

higher option prices

lower stock prices

lower put prices

Question 5

Commodity contracts are

1 and 2

1 and 3

2 and 3

all of these choices

Question 6

If a call is overvalued, put-call parity suggests that the investor should

sell the call and the stock and buy the put and the bond

sell the call and the bond and buy the put and the stock

sell the bond and the put and buy the stock and the call

sell the stock and the put and buy the call and the bond

Question 7

A writer of a call option closes the position by

purchasing the stock

selling the stock

purchasing the option

selling the option

Question 8

According to the Black/Scholes option valuation model, the value of a call option increases if

the option approaches expiration

the return on the stock is more certain

interest rates on a discounted bond decline

the standard deviation of the stock's return increases

Question 9

The writer of a naked call option wants

the prices of the stock and the call to rise

the prices of the stock and the call to fall

the prices of the stock to fall and the call to rise

the prices of the stock to rise and the call to remain stable

Question 10

If an individual expected securities prices to fall, that investor could

1 and 2

1 and 3

2 and 3

all of these choices

Question 11

Call options offer buyers

potential leverage

liquidity

income

safety of principal

Question 12

Options sell for a time premium over their intrinsic value because

they earn dividends

they are debt obligations

they offer potential leverage

they are long-term investments

Question 13

A put is an option to

buy stock

receive stock

sell stock

receive dividends

Question 14

If an investor constructs a covered call,

there is no limit to the potential profit

risk is increased

risk is reduced

the term of the position is increased

Question 15

To acquire a straddle, the investor

buys stock and a call

buys two calls with different strike prices

buys a put and sells a call

buys a put and buys a call

Question 16

A call is an option to

sell stock at a specified price

buy stock at a specified price

deliver stock at a specified price

deliver bonds at a specified price

Question 17

Which of the following is premised on lower stock prices?

buying a stock index call

buying a stock index put

buying a stock and selling a call

buying a stock and selling a put

Question 18

Futures contracts offer the advantage of

potential leverage

liquidity

safety

tax savings

Question 19

Because of arbitrage, the price of an option

exceeds its intrinsic value

is less than its intrinsic value

cannot be less than its intrinsic value

cannot be greater than its intrinsic value

Question 20

According to the Black/Scholes option valuation model, a call option's value decreases if

interest rates increase as the option approaches expiration

the variability of the stock's return declines and the interest rate decreases

an increase in the price of the stock results in a two for one stock split

the option is exercised

Question 21

Warrants are issued by

individuals

firms

governments

investors

Question 22

The CBOE is

1 and 2

1 and 3

2 and 3

all of these choices

Which of the following assumes higher stock prices?

1 and 3

1 and 4

2 and 3

2 and 4

Question 24

Speculators who are short

expect prices to rise

are not seeking capital gains

are hedging their long positions

anticipate lower prices

Question 25

If the commodity's futures price declines

1 and 3

1 and 4

2 and 3

2 and 4

sell a straddle

buy a straddle

buy a call

buy a put

Question 2

Warrants and calls do not have

an expiration date

a specified exercise price

the right to receive dividends

a strike price

Question 3

The maximum daily price increase that is permitted in the futures markets is

the daily limit

the daily range

$1 per contract

5% per contract

If the investor buys a bear spread, the individual anticipates

higher interest rates

higher option prices

lower stock prices

lower put prices

Question 5

Commodity contracts are

1. bought and sold through commodity exchanges 2. considered to be speculative investments 3. permit investors to take either long or short positions

1 and 2

1 and 3

2 and 3

all of these choices

Question 6

If a call is overvalued, put-call parity suggests that the investor should

sell the call and the stock and buy the put and the bond

sell the call and the bond and buy the put and the stock

sell the bond and the put and buy the stock and the call

sell the stock and the put and buy the call and the bond

Question 7

A writer of a call option closes the position by

purchasing the stock

selling the stock

purchasing the option

selling the option

Question 8

According to the Black/Scholes option valuation model, the value of a call option increases if

the option approaches expiration

the return on the stock is more certain

interest rates on a discounted bond decline

the standard deviation of the stock's return increases

Question 9

The writer of a naked call option wants

the prices of the stock and the call to rise

the prices of the stock and the call to fall

the prices of the stock to fall and the call to rise

the prices of the stock to rise and the call to remain stable

Question 10

If an individual expected securities prices to fall, that investor could

1. buy put options 2. sell a stock index futures contract 3. sell stock short

1 and 2

1 and 3

2 and 3

all of these choices

Question 11

Call options offer buyers

potential leverage

liquidity

income

safety of principal

Question 12

Options sell for a time premium over their intrinsic value because

they earn dividends

they are debt obligations

they offer potential leverage

they are long-term investments

Question 13

A put is an option to

buy stock

receive stock

sell stock

receive dividends

Question 14

If an investor constructs a covered call,

there is no limit to the potential profit

risk is increased

risk is reduced

the term of the position is increased

Question 15

To acquire a straddle, the investor

buys stock and a call

buys two calls with different strike prices

buys a put and sells a call

buys a put and buys a call

Question 16

A call is an option to

sell stock at a specified price

buy stock at a specified price

deliver stock at a specified price

deliver bonds at a specified price

Question 17

Which of the following is premised on lower stock prices?

buying a stock index call

buying a stock index put

buying a stock and selling a call

buying a stock and selling a put

Question 18

Futures contracts offer the advantage of

potential leverage

liquidity

safety

tax savings

Question 19

Because of arbitrage, the price of an option

exceeds its intrinsic value

is less than its intrinsic value

cannot be less than its intrinsic value

cannot be greater than its intrinsic value

Question 20

According to the Black/Scholes option valuation model, a call option's value decreases if

interest rates increase as the option approaches expiration

the variability of the stock's return declines and the interest rate decreases

an increase in the price of the stock results in a two for one stock split

the option is exercised

Question 21

Warrants are issued by

individuals

firms

governments

investors

Question 22

The CBOE is

1. a secondary market in put and call options 2. a division of the SEC that regulated option trading 3. the first organized options exchange

1 and 2

1 and 3

2 and 3

all of these choices

Which of the following assumes higher stock prices?

1. buying a stock index call 2. buying a stock index put 3. selling a stock index call 4. selling a stock index put

1 and 3

1 and 4

2 and 3

2 and 4

Question 24

Speculators who are short

expect prices to rise

are not seeking capital gains

are hedging their long positions

anticipate lower prices

Question 25

If the commodity's futures price declines

1. the long position profits 2. the short position profits 3. the buyer of the contract profits 4. the seller of the contract profits

1 and 3

1 and 4

2 and 3

2 and 4

Explanation / Answer

1.) buy a put

2.) an expiration date

3.) 5% per contract

4.) higher option prices

5.) 2 and 3

6.) sell the stock and the put and buy the call and the bond

7.) purchasing the stock

8.) interest rates on a discounted bond decline

9.) the prices of the stock to fall and the call to rise

10.) 1 and 3

11.) safety of principal

12.) they earn dividends

13.) receive dividends

14.) risk is reduced

15.) buys two calls with different strike prices

16.) buy stock at a specified price

17.) buying a stock and selling a call

18.) potential leverage

19.) cannot be greater than its intrinsic value

20.) the variability of the stock's return declines and the interest rate decreases

21.) firms

22.) 1 and 2

23.) 1 and 3

24.) anticipate lower prices

25.) 1 and 4

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